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Auditing & Accounting Update

Auditing & Accounting Update

In this section, we provide brief updates on regulatory developments in auditing and accounting that may impact Japanese companies in the United States. Further discussion of the issues can be found in KPMG's Department of Professional Practice's Defining Issues.

Related content

FASB and IASB Propose Clarifications to Revenue Standard

On February 18, 2015, the FASB and the IASB agreed to publish proposed amendments to the new revenue standard in the areas of licenses and identifying separate performance obligations. The changes are intended to address implementation issues in a wide variety of industries, including media, pharmaceuticals, software, and telecommunications. While the FASB proposes to make more extensive and more detailed changes than the IASB, the Boards agreed that the proposed amendments would represent clarifications to the new standard and are not intended to alter its underlying principles.

On February 18, 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. The ASU eliminates the ASU 2010-10 deferral of the ASU 2009-17 VIE consolidation requirements for certain investment companies and similar entities. In addition, the ASU excludes money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940 or that operate under requirements similar to those in Rule 2a-7 from the U.S. GAAP consolidation requirements. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which the decision making rights are conveyed though a contractual arrangement.

The ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. The effective date is one year later for all other entities. Early adoption is allowed, including early adoption in an interim period. A reporting enterprise may apply a modified retrospective approach or full retrospective application.

Defining Issues 15-8 discusses the FASB and the IASB's significant decisions about lease accounting since October 2014 and provides KPMG's observations about the potential effects of those decisions. In January, the Boards jointly discussed lessee disclosures and subsequently met separately to discuss transition and other topics. As has been the case with each joint meeting since March 2014, the Boards reached converged decisions in the reconsideration of some of their proposals, but they disagreed on other key areas.

Both Boards have substantially concluded their discussions and have directed their respective staffs to begin writing final standards. The standards will contain numerous points of divergence, the most significant of which relate to lessee accounting. Neither Board has decided when the new standards will become effective, but both plan to issue their final standards by the end of 2015.

At its meetings in February and March 2015, the FASB reached decisions about (1) transition methods for purchased-credit impaired financial assets and other-than-temporarily impaired debt securities and (2) the disclosure requirements under the proposed standard on financial instrument impairment. The FASB directed the staff to draft the final standard, and plans to discuss the effective date at a later meeting.

At their joint March 18 meeting, the FASB and IASB each proposed amendments to its respective standard about revenue recognition to provide additional practical expedients for transition. The FASB also will propose a practical expedient to allow entities to elect as an accounting policy presenting sales taxes on a net basis, and decided to clarify the guidance about noncash consideration and collectibility. The FASB directed its staff to continue to explore possible clarifications to the principal versus agent guidance.

The IASB will monitor the FASB's standard setting to determine whether it needs to change its standard to maintain convergence.

At its April 1 meeting, the FASB decided to propose a one-year deferral of the effective date of the revenue recognition standard for all entities. Entities should use the extra year to more effectively implement changes to their accounting systems, processes, and controls that will be driven by the standard.

Revenue Transition Group Discusses Consideration Payable to a Customer, Series Guidance

The FASB and IASB's Transition Resource Group for Revenue Recognition met on March 30, and discussed several issues related to the new revenue recognition standard. The Transition Resource Group members agreed with the FASB staff that stakeholders can understand and apply the guidance in the new revenue standard for the majority of the issues discussed. However, for certain issues, the Board may issue additional guidance or undertake standard setting to reduce diversity in practice. The FASB and IASB also are considering how much longer they will accept Transition Resource Group topic submissions.

Upon adoption of this ASU, entities will present debt issuance costs related to a recognized debt liability on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. Entities will no longer record the cost of issuing debt as a separate asset, except when the cost is incurred before receipt of the funding from the associated debt liability. This change will align the presentation of debt issuance costs under U.S. GAAP more closely with the presentation under comparable IFRS.

The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. It is effective for all other entities for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.

On April 15, 2015, FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which clarifies when fees paid by a customer in a cloud computing arrangement relate to the acquisition of a software license, services, or both. The ASU provides criteria for customers in a cloud computing arrangement to determine whether the arrangement includes a license of software. The ASU may affect certain financial metrics such as EBITDA and classifications within the statement of cash flows.

On March 25, 2015, the SEC finalized revisions to Regulation A that raise the limit on exempt offerings from $5 million to $50 million within a 12-month period and create a two-tier framework for eligible issuers to follow. The revisions required by the Jumpstart Our Business Startups (JOBS) Act are designed to make it easier for small companies to raise capital while providing meaningful investor protection.

On April 15, 2015, the FASB issued guidance to provide a practical expedient to allow employers with fiscal year-end dates that do not fall on a calendar month-end to adopt a policy to measure pension and postretirement benefit plan assets and obligations as of the calendar month-end date closest to the fiscal year-end.

The FASB also provided a similar practical expedient to allow all employers performing interim remeasurements in response to significant events (e.g., a plan amendment, settlement, or curtailment) that do not fall on a calendar month-end to use the closest month-end date as the measurement date.

The financial statements of employee benefit plans are outside the scope of the amendments.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.